Term Paper on "CSR Corporate Social Responsibility"

Term Paper 14 pages (3757 words) Sources: 30 Style: Harvard

[EXCERPT] . . . .

CSR

CORPORATE SOCIAL RESPONSIBILITY

Corporate social responsibility is an important but "evolving" concept and thus while it may be easier to define it; it is certainly difficult to explain the motives of a company behind adoption of this strategy. It is believed that firms are not always interested in long-term image enhancement that results from CSR but some are simply looking for immediate financial gains accruing from spending on community projects. CSR, regardless of a company's primary objectives, is an important subject of debate in business ethics study since it is commonly believed that if a firm earns from the community, it must return the favor by giving back to the community. The idea makes sense and the argument can be backed by various ethical and moral theories. Barnard (1938) had similar argument in mind when he said: "It seems to me inevitable that the struggle to maintain co-operation among men should as surely destroy some men morally as battle destroys them physically." (p.278) Such moral beliefs and values gave birth to the organized concept of CSR.

Interestingly not everyone feels the same way. While many support the concept of CSR, there are some thinkers including the well-known economist, Milton Friedman who did not agree with the idea of investing in community work. We shall discuss Friedman later in the paper with greater detail.

Background of Research

Ethics has always been an integral part of the way human beings are expected to think and behave. For this reason, it has entered the field of business and commerce as well. Many philosophers have posed the question: "why does a person behave ethically." In the same vein, we can ask, why must a firm behave ethically? The answer can come from religious, moral as well as purely capitalist sources. It is believed that man is expected to behave ethically because it is the "divine command," one's duty, or in the words of Kant, an action is considered right only when it is based on a sense of duty. Hence there can be many reasons for explaining the expectation of ethical approach. People like Benjamin Franklin who were more morally inclined felt that "business is the pursuit of virtue." That is however a very simplistic way of explaining the expectation of ethics and may not be easily accepted by capitalistic circles. Jackall (1988) on the other hand feels that there is no real morality existing in the firm. The morality we find in a modern firm is based on "that right thing" which people above you want from you. Today Corporate social responsibility, though it is tied with ethics and morality, is increasingly being employed to gain competitive advantage and thus the main purpose of this research is to explore the ways CSR is being integrated in business operations today.

Overview of Research

This research is critical for understanding the need and implementation of CSR in businesses today. with such high profile cases as Tylenol tampering and Bridgestone tire recall, CSR has gained greater prominence. Many feel that CSR is closely connected with higher financial gains and better overall performance in the market. In this research, we shall explore the phenomenon to see how it actually affects business and how it helps in gaining competitive advantage.

Aims and Objectives:

to better understand the concept of corporate social responsibility to find out how CSR has actually been used by real firms to see how the reality ties with the theory to see if CSR actually leads to better financial performance and hence greater competitive advantage

Key Research Questions:

What is corporate social responsibility?

How are firms employing the concept today?

Does CSR actually lead to competitive advantage?

Is CSR tied with better financial performance?

Are firms more likely to adopt CSR if it would result in better performance?

How has CSR fared in the past?

Literature Review

Corporate social responsibility, while it may be immensely critical, doesn't always come with a serious concern for better image in the country. It is usually connected with a desire to perform better in the financial area. In other words, financial gains are an important concern when CSR is being adopted. In many cases, it has been expected to lead to higher market share. We must make it clear here that these are expectations and actual effects may differ from firm to firm. Some studies have some that in many firms, managers are more likely to adopt and integrate CSR in company's motto and policies if this investment is likely to result in monetary benefits. Managers are willing to invest in CSR related projects because it is expected to result in better financial health and greater monetary situation for the firm. Lydenberg et al. (1986) maintain that "Companies fight hard for even a small percentage gain in market share for their products. If and when corporate managers become convinced that their company's social record affects market share, they will be forced to take social initiatives seriously."

Social responsibility has also become a buzzword because of the availability of large variety of similar goods. When a product comes into the market, it has to fight very hard for consumer's attention because there are several other rival goods competing for the same. A marketing and design consultant (Neuborne, 1991) states: "There was a time when you bought a product just for its price or performance...but with the number of products available, it is increasingly difficult to differentiate one product from another." In this situation, a consumer may base his buying decision on company's image and its commitment to public good. This is clearly indicated by a book, 'Shopping for a Better World' that has been selling millions of copies since it first came out in the market. The book rates and ranks companies according to their social responsibility performance. As a result of this in 1989 alone, 78% buyers switched brands. (Davids1990). World Bank defines CSR as: "Corporate Social Responsibility is a term describing a company's obligations to be accountable to all of its stakeholders in all its operations and activities."

While it is now true that corporate social responsibility is highly desired, it has not always been the accepted practice for corporations. In 2004 for example Henry Miller in the Miami Herald, Henry Miller wrote, "Businesses do not have social responsibilities; only people do." (Miller, 2004). Similarly 'The Economist' failed to see why corporations must be forced to adopt a socially responsible framework. Thus in its 2005, issue the Economist skeptically reviewed the firms that were contributing to tsunami relief effort: "All things considered, there is much to be said for leaving social and economic policy to governments."(the Economist) Milton Friedman was probably the first theorist and economic expert to reject the theory of "social conscience of business" when in 1970 essay, he declared: "There is one and only one social responsibility of business -- to use its resources and engage in activities designed to increase its profits."

The most important framework in which this issue must be studied is the traditional model. Milton Friedman was a good representative of this traditional conflict as he argued that money spent on social ventures was most likely coming from employees or stakeholders. This neoclassical model states that when social responsibility becomes one of the concerns, profits suffer. As the result of which any dollar spent on community projects is stolen from stakeholders' money. This is also consistent with the views expressed by the Economist in its Jan, 2005 issue. It was argued that money that corporations were spending on relief effort had indeed been coming from equity owners. The supporters of this model maintain that social responsibility and profits must be viewed as exclusive goals. McDonough and Braungart (2002) further clarify the conflict in Cradle to Cradle: "We are accustomed to thinking of industry and the environment as being at odds with each other, because conventional methods of extraction, manufacture, and disposal are destructive to the natural world. Environmentalists often characterize business as bad and industry itself (and the growth it demands) as inevitably destructive. On the other hand, industrialists often view environmentalism as an obstacle to production and growth.... It appears these two systems cannot thrive in the same world." While firms have become conscious of their roles as socially responsible units, there still exists a deeper conflict between this desire to achieve this image and maximize profits. Many firms would still prefer to invest in projects that are profitable even if at the cost of environmental safety or community good. Susan Ariel Aaronson and James T. Reeves (2002) explain in Corporate Responsibility in the Global Village: The Role of Public Policy: "Although market forces are increasingly pressing companies to act responsibly, markets have not succeeded in prodding corporations to 'do the right thing' everywhere they operate. To some degree, public policies to promote CSR arise from market failures."

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